Day 14 of staycation on steroids and I emerged from my blanket fort later than normal. It wasn’t until two hours later that I realized it wasn’t Wednesday. That’s when I knew I needed to get it together, put on my daytime Captain Kangaroo jammies and get to work on my “Green Light Red Light” game with Mr. Greenjeans.
Broader Market Review
We are having another big green day in the stock market. As I wrote on Monday night about the broad market indexes..
“If they do hold we can make a case for the end of the decline and the beginning of the bottoming process. The Dow, S&P 500, Nasdaq, technology sector and semiconductor index are each positioned at these critical levels that are logical places to bottom and any failure here would signal further declines.
This presents us with long term asymmetrical risk/reward opportunities. When price defaults to these long term levels you can bet big buyers are paying attention and beginning to incrementally step in. There is a clearly defined risk under such critical support and unlimited reward above. Low risk/high reward entries are always associated with price trading down into these important inflective price levels.”
You can see, right before your eyes, the importance of understanding these long term, historic inflection points to identify key stock market reversals. The few individual stocks and broader market indexes I shared on Monday have ripped higher. Boeing Co (BA) alone is up 75%.
This does not mean we have bottomed. This means we were successful in identifying the very important inflective price levels that have driven the surge over the past three days. In addition, these are the kinds of levels where reversals are likely to occur and where multi-year bottoms form. The Dow is up over 20% since I wrote and identified these price levels three days ago. This is not surprising considering that price is often reflective; oversold often leads to overbought.
What we are looking for now is a confirmation this is an intermediate term bottom and reversal. Any break below Monday’s low would be short and intermediate term negative. We are looking for Monday’s low to be the foundation for a recovery.
We have had three very strong days in a row. Today’s last few minutes of trading surged higher leaving the short sellers more worried than the longs. This is exactly what we are looking for at exactly the right levels. This is exactly what price needs to do to shut down (squeeze) the short sellers and stabilize the fear.
The Dow proxy ETF (DIA) chart shows what a recovery would look like. I’m looking for price to hit overhead resistance (circle) soon and get slammed down (reflective) to around 210 where I would look for another reversal and leg up into a higher resistance level. Short term, I would like to see higher highs and higher lows until we get up around 250 where it would be more likely to see a sell off back to near 224. This will all be easier to measure with a completion of this first leg higher.
SPDR Dow Jones Industrial Average ETF (DIA)
Invesco QQQTrust Ser1 (QQQ)
Individual Stock Review
Take a look at some of the companies catching my eye over the past few days.
Bandwidth Inc (BAND)
I haven’t touched this chart since December 21st. Look at how price reversed higher exactly at the ascending support level I drew in three months ago. This is what we want to see. We want to see individual stocks bottoming and reversing higher at their own strong support levels.
Remember, each instrument, equity or debt, has its’ own cycle characteristics.
Everbridge (EVBG)
Look how well this software application company has performed during the chaos. It’s still right at the top of its all time range. Just amazing. I still love this subsector.
Netflix Inc (NFLX)
I’ll bet you’ve been watching a lot of Netflix. This is another rockstar that briefly provided a slightly lower price. It’s quietly breaking up through resistance again with strong relative and absolute performance.
Amazon.Com Inc (AMZN)
Look at the long term repeating cycles. Recent events are just delaying the cycle. The reversal off the 2016 ascending support low of $1626 just days ago has been strong. It tagged the exact support low and surged higher like it was an orchestrated event. Current value just might have made a multi-year low.
There continues to be an alignment of more individual stocks bottoming around significant support levels. We want to see this pattern continue to build a wider base for what just might be an extremely strong recovery.
So far, so good. If the Dow can close strong tomorrow with a big green weekly close that will go a long way towards providing the stability we need to settle the fear that has permeated the past few weeks and get to the other side of this catastrophe.
I wish you health and safety and I am so grateful for our health and food distribution professionals for their selfless heroism. I think we will come out of this with a strength of community that will drive our economy for years to come.
Now I’m going back to my blanket fort with some popcorn..then some Rocky Road ice cream.
God Bless You,
Don